Special needs

Special needs trusts for the disabled are unique trusts specifically permitted under both Federal and Colorado law to provide funds for the special needs of disabled people without the loss of their Social Security disability income or their public health benefits, such as Colorado Medicaid.

First Party Disability Trusts

A first party disability trust is a special needs trust established to hold funds that initially belong to a disabled person who is under the age of 65 at the time the trust is established. For example, this might include cash, securities or real estate received from an inheritance or the proceeds of a personal injury award or settlement. The trust must be established by a parent, grandparent, guardian or court. In cases in which the disabled person is competent to handle their own affairs, the trust is usually established by the state district court for the county in which they live after a petition by a relative or other interested person. The trustee is an independent person who will have discretion in how to apply the funds for the benefit of the disabled person.

The trust is prepared by an attorney and submitted to the court, as well as either Social Security or Colorado Medicaid. The court and legal fees are usually paid from the proceeds going into the trust. The first party special needs trust must provide that the State of Colorado will be paid back from any funds remaining in the trust if the disabled beneficiary dies.

Third Party Special Needs Trusts

A third party special needs trust, also sometimes called a supplemental needs trust, is established by a third party with their funds for the benefit of a disabled person. For example, a parent may establish a third party special needs trust for the benefit of a disabled child. There is no age limit on the age of the disabled person when establishing a third party special needs trust.

If the trust is established during the parent’s lifetime, rather than in their will, it can also be available to be named by other relatives who might wish to gift, or leave something in their own will, for the benefit of the disabled person. This trust is generally prepared by the estate planning attorney for the third party and will be designed to meet the requirements of Social Security and Medicaid. The person setting up the third party trust can name beneficiaries to receive any assets remaining in the trust in the event the

Pooled Trust for the Disabled

A pooled trust is a trust approved by the state and operated by a non-profit for the benefit of multiple disabled people. There is one large trust in which each disabled person receives an account. The non-profit serves as the trustee for all of the beneficiaries and a case manager is appointed to work with the disabled person and their family to determine how best to spend the funds. In the event the disabled person dies before the funds in the account are used up, the pooled trust will generally keep the remaining funds to use for the benefit of other disabled beneficiaries of the pooled trust. An example of a Colorado trust is the Colorado Fund for People with Disabilities. You can read more about them here: www.cfpdtrust.org.

Working with an experienced attorney in selecting the appropriate special needs trust and tailoring it to the needs of the disabled beneficiary and their family can be extremely helpful in enhancing the quality of life for a disabled person. As with many aspects of legal planning, there are typically more options available to those who consult with an attorney early in the planning process.